For many consumers, inflation is bad because it means that prices for food and other products will increase. On the other hand, it's possible for investors to benefit from inflation by making the right investments. Inflation occurs when the prices of services and goods see sustained increases.
While some investments will perform poorly during inflationary environments, other asset classes have historically performed well. In the past century, the value of gold has largely withstood the pressures of inflation, which is why it's commonly used as an inflation hedge. The following is a comprehensive guide on why you should use gold as an investment against inflation.
What Is Inflation?
Inflation is a core aspect of economics that centers around how quickly the cost of goods increases over a certain period of time. When prices increase because of inflation, many consumers are less likely to spend their money on goods and services. Just like all national monetary authorities, the U.S. Federal Reserve makes sure that the rate of inflation is kept within a set range, which allows for the greater economy to continue its growth.
Both the Producer Price Index and Consumer Price Index are used to measure inflation and determine what the current rate is. Even though consumers tend to view inflation as a negative situation, investors can benefit from an inflationary environment. For instance, property values increase alongside inflation, which means that people who invest in real estate should obtain higher returns during inflation.
How to Invest Against Inflation
Investing against inflation is done to ensure that your returns increase at the same time that the prices for goods and services increase. As mentioned previously, a great way to invest against inflation is by investing in real estate. Since property prices increase during a period of inflation, you can be relatively confident that you will obtain higher returns that offset the rate of inflation.
Keep in mind that currency loses some of its value during inflation, which is why it's highly recommended that you consider investing in tangible assets. While gold has served as the primary investment option during inflation, other precious metals provide similar benefits. Some of the main commodities that increase in value during inflation include cotton, oil, orange juice, and soybeans.
There are a range of stocks and bonds that you can invest in if you want to mitigate the rising costs of inflation. While bonds are usually poor investments during inflation because of their fixed returns, it's possible to buy inflation-indexed bonds that take this issue into account. As for stocks, it's wise to invest in companies that are able to pass the rising costs of inflation to their customers.
Guide to Investing in Gold
There are many methods you can use when you want to invest in gold, which include everything from buying physical gold to purchasing a gold ETF. Before you start investing in gold, it's essential that you consider every investment method to determine which one is right for your portfolio. The easiest way to invest in gold is by purchasing physical gold via coins and bullion. We highly recommend you get a free gold investors kit to get started.
If you decide to invest in physical gold, there are a range of reputable online companies that sell gold and can advise you on which coins and bars provide the best returns. The majority of buyers choose to invest in coins that are widely circulated, which makes it easier to liquidate the gold when needed. When you purchase gold bullion or coins, you will likely be required to also invest in storage.
Another investment opportunity involves putting your money into an Exchange Traded Fund, which eliminates the storage and physical ownership obligations. By investing in an ETF, the owner of this fund will purchase and store the gold for you. One notable benefit of investing in this type of fund is that shares can be traded directly on the New York Stock Exchange.
While you can benefit from placing your money in an ETF, this move can be risky when compared to investing in physical gold. It's possible for gold stocks to rise and fall more rapidly when compared to the actual price of gold, which means that the inherent risk of investing in an ETF is higher than investing in physical gold. Even though investing in an ETF can be convenient, your costs will be higher since the ETF owner will be required to purchase, insure, and store the gold for you.
Another option to consider is investing your money in gold futures, which involves entering a contract where you agree to buy a certain amount of gold at some point in the future. The price of the gold will be set at the time of the agreement. If the price of gold increases in the interim, you will benefit from being able to purchase the gold at the agreed upon price.
Gold futures are relatively straightforward and typically involve a mixture of long-term and short-term capital gains. You can also purchase and sell gold whenever you want without needing to worry about management fees and other expenses. The main risk that comes with this investment is that the price of gold could drop after you've signed the contract, which could cost you a substantial sum of money.
The final gold investment option involves investing in gold mining stocks. Even though you won't be purchasing the gold directly, you can obtain high returns if the company performs well. If you select this investment option, your returns depend on the company's operating performance, their ability to earn a profit, and how they use their capital.
The primary downside to investing in gold mining stocks is that you don't have any kind of security in the event that the company fails. Investors can mitigate this risk by placing their money into ETFs and mutual funds that invest in numerous gold mining companies. As such, your returns won't decrease substantially if one company happens to fail or generate lower revenues than anticipated.
Benefits of Making Gold Investments
There are a range of benefits that come with investing in physical gold. While other gold investment methods can provide you with significant returns, most gold investors choose to purchase physical gold because of the advantages that that this technique provides.
First of all, physical gold is easy to obtain and comes with very little risk compared to other investment options. Some of the main advantages of investing in gold include:
Among the best aspects of investing in gold is that gold is no longer considered to be a currency. While the purchasing power of the US dollar and similar government currencies has declined precipitously over the past few decades, this issue doesn't affect gold. In fact, gold has the best long-term value when compared to nearly every other currency.
As mentioned previously, gold is considered to be a tangible asset, which means that you can gain access to it whenever you want. While real estate investments can provide you with high returns, it's not always easy to access the money you invest, which is why many investors believe gold to be among the best investments that can be added to a diversified portfolio.
Even though physical gold needs to be stored once it's been purchased, obtaining professional storage is a simple and straightforward process. The costs are also relatively low since there are no maintenance fees.
Gold is very easy to store because of its high value. If you purchase $50,000 in gold, this amount of gold can be held in one hand, which means that storage requirements are kept to a minimum. It's possible to store more gold in a safety deposit box when compared to stacks of dollar bills.
Another benefit of gold investments is that the gold you purchase can be used to hedge your other stock market investments. Historically, the value of gold has increased at times when the stock market has declined.
In the 2008 stock market crash, the S&P 500 decreased by nearly 57 percent in total value. Even though gold initially decreased in value after the crash, it quickly rebounded and increased by more than 25 percent in value by March 2009. If you want to protect your portfolio against stock market crashes, gold is a great investment.
Risks Associated With Investing in Gold
Even though physical gold investments are more advantageous than many other investment options, there are still some inherent risks that come with investing in gold. For instance, it's possible for your gold to be stolen in the event that your gold isn't as secure as it should be. To safeguard against this issue, it's highly recommended that you purchase storage from a reputable provider.
Even though gold can increase significantly in value, you aren't investing in the growth of a company, which makes this a different type of investment when compared to stocks and bonds. When you purchase physical gold, you won't obtain interest or dividends from your investment.
Gold can increase sharply in value over a short period of time. However, gold isn't always a volatile investment option, which means that the value of gold may not increase much for a few years after your initial investment.
While gold prices increased by nearly 25 percent in 2020, they actually decreased in value by one percent in 2018. Since 2000, gold has increased in value 16 years out of 20, which makes this a relatively safe and potentially lucrative investment.
Companies That Can Help You Get Started with Gold Investments
Before you think about buying physical gold, it's important that you consider multiple companies to make sure that you invest with the right platform. While there are many companies that help investors make gold investments, the following takes a closer look at the top three companies available to you, all of which offer free gold investment kits to help you get started.
Goldco is a premier gold investment company that offers gold IRA accounts that allow you to easily invest in physical gold via coins or bullion. They are known to provider stellar customer support and will give you all of the information you require to make an informed purchasing decision. The main benefits of investing your gold with Goldco include:
Keep in mind that the minimum investment for an IRA account is set at $25,000. If you invest in a non-IRA account, the minimum investment is only $3,500.
As for maintenance fees, you don't need to pay these fees for any non-IRA transactions. On the other hand, a flat annual fee of $180 is required for IRA transactions.
Some of the educational materials that Goldco provides to customers include an extensive list of videos, e-books, and a comprehensive blog that covers numerous investing topics. These materials can pay dividends by providing you with the knowledge you require to make smart and sound investments.
To understand the sterling reputation that Goldco has garnered, their BBB rating is currently A+. They also have almost perfect reviews on Trustpilot and Consumer Affairs. To obtain a free gold investment kit with Goldco, all you need to do is enter your email address, phone number, and name.
Augusta Precious Metals is another investment company that specializes in precious metals IRA accounts. They have low storage and maintenance costs and are known for providing customers with transparent pricing. The main benefits of making a gold IRA with Augusta Precious Metals include:
Some of the drawbacks of using Augusta Precious Metals include:
When you want to purchase gold through Augusta Precious Metals, you'll find that they provide seven-day price protection. They also work directly with the Delaware Depository to provide for all of your storage needs. Keep in mind that the Delaware Depository has numerous storage locations throughout the U.S.
Even though you can't make purchases online when buying gold with this company, experienced customer representatives will assist you with every transaction by helping you fill out all of the requisite paperwork. As mentioned previously, you can't invest in palladium or platinum with Augusta Precious Metals. The only investment options they provide include silver and gold.
Birch Gold Group is a premier precious metals firm that's located in Burbank, CA. Along with gold and silver, customers with the Birch Gold Group are given the opportunity to invest in platinum and palladium. As with the other two companies on the list, you can obtain a free gold investment kit to help you get started before you make your initial investment.
The Birch Gold Group has an in-house IRA department that helps simplify the investment process and educate customers about what it takes to invest in gold. The primary benefits available through Birch Gold Group include:
The only issue with using this company for your gold investments is that they don't automatically specify what the annual fees and setup charges will be, which means that you won't know what these fees are until after you make an account. You'll find that Birch Gold Group partners with many storage providers, the primary of which include Brink's Global Service and Delaware Depository.
When you want to make a gold IRA investment with Birch Gold Group, you'll notice that there are nine approved investments that you can make, which include everything from American Gold Eagle coins to gold bars and rounds.
Gold is a worthy investment for anyone who wants to invest against inflation and diversify their portfolio. Even though gold can be more volatile than other investment options, it also tends to increase with inflation, which will keep you protected while the prices of goods and services increase.